7 Consumer Discretionary Stocks That May Defy Expectations

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Consumer discretionary stocks are those of companies that make products that are popular, but not considered essential. These stocks tend to perform well in a bull market but can lag behind the broader market during periods of volatility. And for the last six months, the volatility that the market has been enduring is adding risk to buying consumer discretionary stocks.

Simply put, consumers will have to be discerning because there are a lot of stocks that will perform poorly. However, like most sectors of the market, it's important for investors to not paint all consumer discretionary stocks with a broad brush. There are several companies that continue to show solid demand remains in place. This is despite high inflation and rising interest rates.

That's the focus of this special presentation. We're highlighting seven consumer discretionary stocks that are worthy of keeping in your portfolio no matter what happens in the broader market.

#1 - Lovesac (NASDAQ:LOVE)

Lovesac (NASDAQ:LOVE) was a big winner during the pandemic. The company is noteworthy for its modular furniture. And when consumers were reimagining their living spaces, the company’s products were popular. That was reflected in revenue that jumped 37% from $233.36 million in the fiscal year 2020 (which ended in April 2020) to $320.70 million in 2021.

But the company wasn’t done. In the fiscal year just ended, Lovesac posted $498.30 million in sales, a 55% jump from the prior year. And full-year earnings came in at $2.85 per share for the full year. To put that in context, the full-year EPS for the prior year was 89 cents per share. And both revenue and earnings have been growing on a quarterly basis.

Now add to this bullish case the fact that housing starts continue to be strong. That means there will continue to be living spaces to furnish. And this adds credibility to the thought that the company could very well hit the $111.33 price target set by analysts.

About Lovesac

The Lovesac Company designs, manufactures, and sells furniture. It offers sactionals, such as seats and sides; sacs, including foam beanbag chairs; and other products comprising drink holders, footsac blankets, decorative pillows, fitted seat tables, and ottomans. The company markets its products primarily through www.lovesac.com website, as well as showrooms at top tier malls, lifestyle centers, mobile concierges, kiosks, and street locations in 41 states in the United States; and in store pop-up- shops and shop-in-shops, and barter inventory transactions. Read More

Current Price: $21.85
Consensus Rating: Buy
Ratings Breakdown: 3 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $35.33 (61.7% Upside)

#2 - TJX Companies (NYSE:TJX)

If you’re going to be a brick-and-mortar retailer you need a hook that makes your stores a sought-after destination. With that in mind, can I interest you in the TJX Companies (NYSE:TJX). The company has a treasure hunt model that continues to drive customers to their locations. TJX buys brand-name merchandise at a discount which allows it to pass along those discounts to the end consumer. In fact, while other retailers are closing stores, TJX is expanding its global footprint to 6,000 stores from approximately 4,500 today.

In terms of revenue, the company delivered $48.55 billion in the last fiscal year. That was a 51% year-over-year improvement. However, since most investors prefer that retail stocks show a comparison to 2019 numbers, TJX still posted a 16% revenue increase over 2019. Not to mention that in 2021, the company reinstated its dividend and just raised it in the last quarter.

About TJX Companies

The TJX Companies, Inc, together with its subsidiaries, operates as an off-price apparel and home fashions retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company sells family apparel, including footwear and accessories; home fashions, such as home basics, furniture, rugs, lighting products, giftware, soft home products, decorative accessories, tabletop, and cookware, as well as expanded pet, and gourmet food departments; jewelry and accessories; and other merchandise. Read More

Current Price: $96.42
Consensus Rating: Moderate Buy
Ratings Breakdown: 13 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $102.65 (6.5% Upside)

#3 - McDonald’s (NYSE:MCD)

I have a teenager in high school sports. I have a McDonald’s about a mile from my home. These two facts frequently converge when the games begin. That reminds me that McDonald’s (NYSE:MCD) is simply a part of most families' lives like Amazon (NASDAQ:AMZN). No matter how much “we” say that we won’t eat at the restaurant with the Golden Arches, there are times when “we” can’t avoid it.

However, the company is still considered a discretionary stock. And there’s a lot of competition for consumers’ fast food dollars. One way McDonald’s is helping to stay ahead of the curve is through the adoption of digital technology. Even with dining rooms reopening, the company encourages the use of its digital kiosks for ordering. And the mobile app makes it easier than ever.

And if over $6 billion of quarterly revenue doesn’t excite you, consider the fact that McDonald’s is part of the exclusive Dividend Aristocrat club of stocks. The company has increased its dividend in each of the last 46 years.

About McDonald's

McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions. Read More

Current Price: $273.00
Consensus Rating: Moderate Buy
Ratings Breakdown: 20 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $319.52 (17.0% Upside)

#4 - Nike (NYSE:NKE)

Nike (NYSE:NKE) was one of the pleasant surprises in the last earnings season. The company just did it by beating estimates on the top and bottom lines. This just goes to prove that premium brands can frequently support a premium valuation. And with a price/earnings ratio of 33.92 as of this writing, NKE stock is overvalued. However, for now, investors seem to be counting on the company’s ability to grow revenue and earnings at a sharp pace over the next five years.

One reason for the company’s growth is an expansion of its digital footprint. In its most recent quarter, digital sales were up 15% which was just slightly below its Nike Direct segment which came in at 15%.

And while Nike is not among the ranks of premium dividend stocks, it has increased its dividend in each of the last 21 years. The dividend ratio of just under 1% (0.95%) is not impressive. But paying out at just under 30% of earnings it’s a sustainable dividend.

About NIKE

NIKE, Inc, together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Read More

Current Price: $94.60
Consensus Rating: Moderate Buy
Ratings Breakdown: 20 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $116.26 (22.9% Upside)

#5 - Starbucks (NASDAQ:SBUX)

Starbucks (NASDAQ:SBUX) has been in the news for many reasons, and a lot of them would not be conducive to share price growth. The company is on the hunt for a new CEO; some of its stores have voted to unionize, and inflation is making the cost of our daily coffee fix rise.

However, at this time the company has been able to successfully pass those costs along to its consumer base. The big question for the rest of 2022 is if that trend will continue. And investors will get their first clue when the company reports earnings in early May. Despite the continued threat of competition, Starbucks is showing no sign of slowing its expansion.

Starbucks recently announced that it had hired Deb Hall Lefevre as Chief Technology Officer. Lefevre formerly worked for McDonald’s. Nike is undoubtedly hoping Lefevre can bring some of that insight into transforming Starbucks’ mobile order-and-pay systems.

About Starbucks

Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of coffee worldwide. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items. Read More

Current Price: $87.80
Consensus Rating: Hold
Ratings Breakdown: 10 Buy Ratings, 13 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $106.68 (21.5% Upside)

#6 - AutoZone (NYSE:AZO)

Used car prices soared during the pandemic as new car production became snarled by supply chain difficulties. But the necessity to get the most out of our existing automobiles caused a spike in auto parts retailers. And AutoZone (NYSE:AZO) is one of the best of its breed.

AZO stock is up 1,700% since the onset of the pandemic and it’s up 45% in the last 12 months. Still, with a P/E ratio of 19.6, the stock may be overvalued compared to its sector but is a bargain compared to the S&P 500 average.

The company does not have a dividend, but it makes heavy use of share buybacks to add shareholder value. The company continues to grow revenue and earnings on a year-to-year basis. Currently AZO stock is trading above consensus estimates. However, in mid-April Raymond James boosted its price target for the stock to $2,400. Which would be an upside of over 10% from the stock’s current price.

About AutoZone

AutoZone, Inc retails and distributes automotive replacement parts and accessories in the United States, Mexico, and Brazil. The company provides various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products. Read More

Current Price: $2,948.40
Consensus Rating: Moderate Buy
Ratings Breakdown: 13 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $3,086.61 (4.7% Upside)

#7 - Skechers (NYSE:SKX)

There must be something about footwear because the last company on our list of consumer discretionary stocks is Skechers (NYSE:SKX). The stock is up 88% since the onset of the pandemic. However, since the beginning of the year SKX stock is down 8%. That’s a little puzzling because the company scored a double beat in its latest earnings report.

It might have to do with the company’s decision to suspend all shipments to Russia in response to the country’s invasion of Ukraine. With the war showing no signs of ending soon, this could be a headwind on the company for an unknown length of time. However, if you have a long-term timeline, SKX stock could be a worthwhile investment. The recent sell-off has pushed the P/E ratio of the stock below 10 which makes the stock more attractive from a fundamental perspective.

About Skechers U.S.A.

Skechers U.SA, Inc designs, develops, markets, and distributes footwear for men, women, and children worldwide. The company operates through Wholesale and Direct-to-Consumer segments. It offers footwear under Skechers Hands Free Slip-ins, Skechers Arch Fit, and Skechers Air-Cooled Memory Foam brands. Read More

Current Price: $66.49
Consensus Rating: Moderate Buy
Ratings Breakdown: 10 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $66.17 (0.5% Downside)

We believe that every stock on this list has a chance to defy expectations in 2022. And as we stated in the introduction, this is a time when it will pay for investors to be very, very selective. But if fund investing is more your style, we can recommend the Consumer Discretionary Select Sector SPDR ETF (NASDAQARCA:XLY). The XLY fund is down 14% for the year and is down about 1% over the last 12 months.

One reason for that is that it contains 60 securities and some of them are in areas such as automobiles and hotels that may continue to underperform the market for quite some time. However, it is the largest and most popular ETF of its kind with over $20 billion of assets under management (AUM) and an average daily trading volume of over 11.5 million shares.